Ladies and gentlemen, thank you for standing by, and welcome to Singapore Airlines Analyst and Media Briefing for the full year ended 31st March 2020. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask questions during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Siva Govindasamy. Thank you. Please go ahead.
Thank you, Rishi. Good morning, everyone. Welcome to the Singapore Airlines Full Year Media and Analyst Briefing. I'm Siva from the SIA Public Affairs Department. I hope everyone is safe and healthy. This morning, we have organized a virtual briefing due to the COVID-19 outbreak. Let's hope that this passes quickly, and we can see each other in person for the next session. We will have two presentations today. First, as VP Finance, Mr. Stephen Barnes will present the SIA results for the fiscal year to 31st March 2020. Next, SIA CEO, Mr. Goh Choon Phong, will take us through the strategy and outlook for the year. This will be followed by a question and answer session. Without further ado, I would like to invite Mr. Barnes to make his presentation. Mr. Barnes, please.
Thank you, Siva. Good morning, CEO and EVPs. Ladies and gentlemen, thank you very much for joining us. I will dive straight into the group's financial results, perhaps to the key takeaways slide. The first line of this slide really summarizes what has dominated SIA Group's financial results in FY19/20. Notwithstanding the good progress and results we had recorded in the nine months to December 2019. The collapse in demand for air travel due to the COVID-19 pandemic starting in late January, coupled with the unforeseeable collapse in oil prices amid a supply glut, are the two themes to which we will be returning this morning. Turning to the P&L on the next slide. These two themes drove the more than SGD 1 billion reduction in the group's operating result in Q4, which ended with an operating loss of SGD 802 million and a net loss of SGD 732 million.
For the full year, the Group recorded a small operating profit of SGD 59 million, thanks to the strong performance in the first nine months of the year. At the bottom line, we recorded SIA Group's first annual net loss in its history of SGD 212 million. For those with sharp eyes and a good memory, there is an additional line item in this representation of the Group P&L, fuel hedging ineffectiveness. I will come back to this. Note for now that the size of this charge is SGD 710 million. Group revenue. In the first nine months, Group's revenue grew by over SGD 500 million. In the fourth quarter, it collapsed by nearly SGD 900 million, or 22% compared with prior year. The pie chart on the next slide describes some of the components.
The revenue decline of SGD 347 million for the year was attributable to, first, lower passenger flown revenue. Demand for air travel collapsed with the closure of international borders and overturned the overall revenue improvement of SGD 239 million achieved by the group in the first nine months. Second, lower cargo flown revenue. This was driven by poor loads carried and yields primarily in the first nine months of the year. Cargo has faced multiple challenges for most of the year. The US-China trade conflict, export manufacturing slowdown in Europe and Asia, and industry overcapacity on several key trade lanes. Downward pressure on yields in the first nine months was reversed in the fourth quarter, when yield was given a boost by an industry-wide belly hold capacity crunch and a spike in demand for transportation of essential medical supplies and other products.
In the fourth quarter, the revenue decline was gentler, just SGD 19 million, when compared to the steep decline in the first nine months. Third, lower engineering services revenue. This was mainly attributable to lower airframe and line maintenance revenue resulting from flight cancellations amidst the COVID-19 outbreak, but also the divestment of Aircraft Maintenance Services Australia last year. Higher other revenue was mainly due to, first, an increase in merchandise sales through KrisShop, and secondly, compensation received by the parent airline from various suppliers. Turning to group expenditure. Group expenditure was up by SGD 661 million for the full year. Even in the fourth quarter, expenditure rose by SGD 162 million. The major reasons for the increase will be discussed in the following slide. First of all, fuel costs post-hedging increased by SGD 49 million. I will show you the main drivers of this in the next slide.
Staff costs fell by over SGD 250 million. This was partly to do with the lower provision for profit sharing, as you might expect. In addition, we received grants under the Singapore Budget 2020, and these items were partially offset by increases in pay and allowances due to a higher average staff strength. Depreciation and leased aircraft charges were up by SGD 220 million. This is really due to the group's enlarged aircraft fleet, a net increase of seven aircraft after accounting for the return of 16 aircraft to lessors. Other expenditure items do not need much comment, save perhaps for fuel hedging ineffectiveness. Yes, it's almost time to talk about this. After all, without this charge of SGD 710 million, group expenditure would have reduced by SGD 9 million. Let's go to the fuel cost. I promised to show you the composition of the fuel cost increase in the year.
First of all, we benefited from lower average fuel prices before hedging. As expected, this was offset by a worse outcome on fuel hedges as we swung from a gain to a loss. We did not consume as much fuel, and we had a small increase in cost from a stronger US dollar. Turning to slide 11. This chart shows that Q4 was a real challenge and operating profit plunged by SGD 1 billion, to an operating loss of SGD 802 million. On the next slide, I'll show you its main components. You can see the, and we've talked about, the reduction in passenger and cargo flown revenue. We've talked about the main cost items. Let me talk about fuel hedging ineffectiveness. What is behind the charge for this item?
Fuel prices plunged towards the end of the fourth quarter as the demand for oil slumped due to the COVID-19 pandemic amid an unexpected supply glut. These losses have been realized, and they are captured in the net fuel cost. The ineffectiveness piece comes about from future capacity cuts. The expected capacity cuts in financial year 2021 will lead to lower fuel consumption than previously anticipated, causing the group to be in an over-hedged position. This means that the hedges we had bought can no longer be tied to expected consumption. Therefore, the hedges are adrift and no longer benefit from hedge accounting treatment.
As a result, the group had to revalue the surplus hedges, because the oil price had plunged by the end of March, we recorded substantial mark-to-market or unrealized losses of SGD 710 million on these surplus hedges. Under financial reporting standards, these losses must be recognized in the financial year 19/20 profit and loss account. Turning to the next slide, we'll look at the contribution of the individual entities. Focusing on the full year, Singapore Airlines revenue decreased by SGD 132 million as a result primarily of the lower cargo revenue, which was down by SGD 269 million. That lower cargo revenue was offset partially by a marginally higher passenger flown revenue, plus other sources of increases in other sources of revenue. Expenditure was up by SGD 565 million for the same reasons that we have identified in the group results, fuel, aircraft depreciation, fuel hedging ineffectiveness.
SilkAir, its revenue fell by SGD 125 million. Mostly this was from lower passenger flown revenue, but also from fewer charter flights. Expenditure, on the other hand, increased marginally just by SGD 2 million or SGD 3 million. It would have been lower in the absence of SilkAir's share of fuel hedging ineffectiveness. Scoot's revenue dropped by just about SGD 100 million. Mainly from lower passenger flown revenue , but also from other sources of revenue, such as lower belly hold cargo revenue. Expenditure, on the other hand, rose by SGD 83 million. Most of this increase was from fuel hedging ineffectiveness. SIA Engineering, I've mentioned previously, had lower revenue from lower airframe and line maintenance, but a greater reduction in expenditure from lower materials costs, production overheads, and staff costs. Turning to slide 14. This is the composition of group net loss.
Lower operating profit and tax credit, compared with the tax expense, higher net finance charges. Let me mention here that under the new leasing standard we adopted in the year, we now recognize interest expense arising from lease liabilities as an interest expense in finance charges. Provisions for losses in relation to NokScoot arise really from the current challenging environment that it finds itself in. On associates and joint ventures, this is primarily attributable to a weaker performance from Vistara, partially offset by Virgin Australia, where losses reduced, and better results from SIA Engineering's associated companies. Next slide. Asset per share was down 7.5%. Earnings per share, on the other hand, swung from a profit to a loss per share.
The reduction in the net asset value per share arises from the net loss during the year, dividends paid during the year, and the fair value movements recorded in reserves from jet fuel hedges. The coverage ratios. Really, this reflects an increase in Sorry, the leverage chart reflects an increase in debt funding. We raised debt funding of SGD 4 billion in relation to SGD 5.1 billion of capital expenditure and SGD 0.5 billion of working capital requirements. You may recall, we added SGD 2.5 billion of lease liabilities from adoption of the leasing standard. Finally, group capital expenditure is slightly a moving target at the moment. We are in negotiations with Airbus and Boeing. What is shown on the screen is our updated committed capital expenditure schedules. Please note that any agreements that we may reach with Airbus and Boeing in coming weeks and months are not reflected here.
With that, I'd like to hand over to our Chief Executive Officer, Mr. Goh Choon Phong.
Thank you, Stephen. Good morning, ladies and gentlemen. Again, welcome to our first virtual briefing. I would start by freshening up on slide 20, the outline of my presentation this morning. As you can imagine, it will be centered around the COVID-19 crisis that the airline industry is currently experiencing. Impact. As all of us are well aware, the SIA Group, since its incorporation, has been having an unbroken record of profitability, and that's through crises such as SARS, 9/11, global financial crisis, et cetera. We have always been profitable, we have always operated in a very efficient, effective manner, and we've always been adapting and getting ahead of changes in the market.
You may recall that about a decade ago, when we were confronted with both the challenges of LCC in the region as well as the fast-expanding Middle Eastern carriers, we came up with successful strategies to address them, such as our portfolio strategy as well as our multi-hub strategy. We don't stand still. We always take on the challenge and move ahead. We've always been adopting a prudent liquidity strategy as well. In fact, our liquidity is in excess of SGD 3 billion at all times, and that's, of course, in the form of both cash reserve and lines of credit. Everyone would be aware of our transformation program as well, which started about three years ago. We have been immensely successful.
In fact, in the third quarter of the last financial year, the quarter October to December, we've achieved record revenue, record load factor, and indeed, one of the best operating profits of any quarter in our history. Here are some of the tangible, quantified achievements coming out of the transformation program. You can see that it touches all aspects of our business. Firstly, of course, to our customers, how they have appreciated the effort and the outcome of the transformation. You can see the increase in the NPS score, the savings that we have achieved for our customers in terms of the efforts to reach out and work with us on issues. You can also see the various transformation leading to better performance in operations, better on-time performance, better productivity, and also, of course, digital capabilities. We have the COVID challenge.
We are all well aware that it started in China, Wuhan, it soon spread to the rest of the world. All our major markets were affected, Europe, U.S., New Zealand, Australia, the rest of Asia. In quick succession, we see that travel restrictions, border controls were put up. As a result of that, global international travel collapses. In fact, as a result of that, we had to cut our capacity towards the end of March by 96%, which is very drastic. We're not alone facing this problem. If you can see the slide, on slide 24 on the right side, you can see the other major carriers too suffered similarly on international routes. Of course, if they have domestic markets, they would have some cushion.
In our case, we are a little more vulnerable because we don't have a domestic market to depend on, which is typically the last to be closed and likely to be the first to be opened. How have we responded? As I mentioned earlier, we have taken decisive steps to cut capacity. I would like to perhaps also state that while we were doing that, we were conscious of the need and sensitivity around having to fulfill our customers' requirements on bringing their loved ones home safely. In that regard, during that time, we have mounted extra charter flights to bring Singaporeans home from Wuhan. We have also kept our capacity to major educational countries where we have many of our students, so that the students can actually be brought home safely too. That includes, for example, the U.K. and Australia.
At this point in time, we maintain a minimum connectivity to key countries, key cities around the world. We operate about 38 flights weekly, serving 15 cities and 14 countries. Cargo is actually a bright spot at this point in time, for two reasons. If you heard Stephen earlier, those reasons were given as well. Let me just reiterate them. Certainly, much of the cargo capacity of airlines in the world are actually being provided by its belly hold, which is, of course, tied to passenger operations. The other aspect is that during this crisis, there were actually significant demand increase for the movement of particularly medical equipment as well as fresh food. That includes PPE. You see that on many of the major lanes, the demand exceeds the supply. As a result of that, we're seeing pretty good cargo demand.
We will maximize our utilization of the freighters. Beyond that, we have also been operating passenger aircraft for cargo-only missions. In fact, we have also gotten agreement, or rather approval, to have cargo carried in the cabin itself, both be strapped to the seat as well as in overhead cabin. That allow us to maximize our revenue opportunity when it comes to cargo, and we continue to look for opportunities to do more. Customer is always at the center of our attention. Throughout this crisis where we operated, we ensure that the customer's well-being, safety when they travel with us is well taken care of. We have looked into areas of pain points to resolve. For example, whether customers were having difficulty reaching out to us through call centers or contact places. We beef up those places with extra manpower to address them.
For obvious reasons, there were a lot of calls because of all the upheaval in the market. We continue to engage our customers through various means. At this point in time, mostly through the electronic means, updating them on what's going on with respect to our network, our operations, as well as activities that take place within SIA. We recognize loyalty, and we proactively offer extension of membership to our KrisFlyer members and our priority passengers. Our staff, very important parts of the organization. In fact, I've always emphasized that the staff is a very strategic component of the organization. They have been doing a lot of volunteering with this COVID period for national efforts to combat COVID in Singapore, and we're very proud of that. I think that's well-publicized, I would not need to elaborate more.
At the same time, we're also taking this opportunity to look at how to upskill our staff. Of course, many of these courses are now converted to electronic form so that they can actually continue to educate and learn more. That's important because they will emerge even more skilled and more capable of handling other tasks. I'm on slide 30 now. Also to emphasize that the Singapore Government has strong support for the aviation sector. This is in recognition that the aviation hub is an important enabler for the rest of the economy, especially the tourism aspect, the manufacturing, logistic aspect as well. The Singapore Government has come out with strong support packages. You can see on the slide there about Jobs Support Scheme, as well as some of cost relief on the airport operations.
Both our PM and DPM have come out strongly too, and the statements you can see on the slide too. Now, a very important aspect of this crisis is that we are now operating at a very minimal capacity, 4%, and therefore virtually no revenue. I mean, there's some revenue, but it's virtually not anything significant. At the same time, we got to continue to have expenditure to keep our operating capability, which means that we're always, at this point in time, be having cash burn. We have taken very practical steps to try to reduce our expenditure. We have announced all of them. I mean, cutting pay for senior management and management, having various schemes of no-pay leave available to staff, talking to suppliers and aircraft manufacturers to defer delivery and also reschedule payments, deferring all non-essential, non-critical projects, and having very high-cost discipline.
All of these have been done. On top of that, we have tapped on our line of credit that we have put in place before, and we're also exploring other forms of funding, secure financing, sale-leaseback. Important to know that that's because we have quite a bit of capacity there because we have a lot of unencumbered aircraft. Obviously, in a situation whereby we have virtually no revenue, this is not going to be enough. That's the reason why we have went on with the strong support of our majority shareholder, Temasek, to have the rights issue exercise. I think this has been presented many times, we have been communicating a lot on this. I will not also need to elaborate on this. Suffice to say that this put us in a very strong position to prepare and capitalize on the recovery.
Slide 33 is, I'm going to talk about the preparation that has been underway for restart. This is really talking about the next six to 12 months, what do we need to put in place and what do we need to ensure that we can restart smoothly. Broadly speaking, I would have to say, firstly, that nobody is sure at this point in time about exactly how the recovery, the pace of the recovery will be like. Also what exactly are the kind of regulatory requirements that countries in the world will put in place to address the need to contain the virus. We have actually broken down into four work groups to address the restart.
A group to look into and to be updated on the health and government regulations with regard to travel, one is the controls as well as the border controls that are listed. This means that we have to work with both the government of Singapore, and also be aware of what other governments are looking at. Some of these are actually coordinated through industry bodies such as IATA, for which we participated actively as well. We also need to look at, for the restart, what kind of travel experience should we offer to our customers, knowing that coming out of COVID, there will be a lot of concern over health and well-being when they travel with us.
We've got to make sure that we address those concerns that our customers will have. There's this aspect of ensuring that our crew and other employees have the necessary license and certifications to actually restart the operation, and also working with our partners such as our ground handling agents, the airports, and others to ensure that the whole operation is smooth for our customers. With all that, we also need to ensure that we have very clear communication, clear and regular communication with passengers and within the organization to ensure everybody is on the same page. Of course, there's the question of what is going to be required when we restart in terms of manpower and therefore the workplace arrangements.
Because many of our staff are now working from home, but with the restart and we're going to increase our operation, we will need to have some of these staff back active on the ground. That was what we have to do right now to ensure that we come back and offer a smooth travel experience for our customers and restore confidence in travel. Going ahead, we expect that the post-COVID world will be very different from what we have seen up to this point in time. Some of the factors are shown on this slide, which is slide 36. We don't know exactly how the trajectory of the recovery will look like. Is it going to be just a U-shaped recovery? Is it going to be a W? Will there be reinfection? We don't know that.
We don't have a domestic market, any operations we do would require the other governments to lift travel restrictions and border control. We need to understand how that's going to be put in place. Again, there is no clear visibility on exactly how that's going to be done. You would have read that on the paper that Singapore government is exploring green lanes with some of the other countries, and we will have to keep a very close watch on the development of those discussions. Of course, beyond that, the return of the economic activities in the various regions and countries. Consumer behaviors are likely to change after COVID. More conscious about surfaces that people touch, more conscious about proximity.
All these will form a new expectation on the travel experience. We would have to take that into consideration on how best to address the consumer's expectation, but importantly also to bring out the facts on what can be expected in terms of what we can provide, as well as what is really safe based on facts and not myths. As we know, we are doing it now, we have a virtual briefing. Much of the business activities are now taking place virtually. There's the question on how much of that will continue post-COVID-19. That is still also an unknown because some of the businesses are really looking forward to reestablishing physical meeting and contact. There's also the question of how the company policy, travel policy might change. The aviation ecosystem as a whole would also be changing.
You look at the changes that Boeing and Airbus are taking. We expect that the distribution channels and all that could be also different given that consumer might prefer more online, more virtual interaction. The way baggage is handled, the way ground handling is going to be done, the way check-ins are going to be done could be also different. All these are going to change ultimately how airline operates. I think it's fair to say that most in the industry expect that there will be, in the near term, there will be some decline in the demand relative to before COVID. There will be some market contraction in the near term. There is no clear visibility on how long it takes to recover, but most in the industry expect it to be a few years. We believe that is a reasonable expectation.
Beyond that, however, there is a general belief that there will be growth at some point. Obviously, with all these changes, we would have to change the way we operate, too. Looking beyond the immediate restart, we believe that there is an opportunity for us to look at all these different factors and ensure that when we emerge, we're in a position of strength and be the first off the block in terms of being able to lead the industry again. For that, we also have a separate stream that looks at these longer term changes and putting us in a position of strength as we emerge. That is really the next phase of transformation that we're embarking on.
In the immediate couple of years, we are really looking at some of the pain points that we currently experience and pain points that we have actually identified during this COVID-19 period, that we can address right away, how to be more effective in engaging our customers, how to address some of the requirement that customer has in terms of ensuring wellbeing when they travel with us. Those things we can go ahead and do. In the medium to long term, we have to take in consideration some of the value driver changes, some of the behavioral changes, some of the business requirement changes. To relook, have a comprehensive relook at how we are doing things now to ensure that we are positioned for the future.
We are also looking at what new business opportunities we may get into, leveraging brands and other core strengths so that we can actually emerge stronger. Let me conclude by sort of a slide that summarizes what I said earlier. Firstly, we are in the position of strength now. We always have a strong and trusted brand. That's a given. Now, with the rights issue, the funding exercise that we have, we'll now be having a strong balance sheet. In fact, I would say that because we started on addressing the liquidity issue early on, we had an early success in securing those funding that is coming in at this moment. This actually put us in probably one of the strongest balance sheets in the industry at the moment. We mentioned that we'll be looking at other avenues of raising funds to secure financing, to build the leaseback.
This strong balance sheet would also put us in a strong position to actually conclude those deals, to negotiate and conclude those deals. We also have talented and committed staff. Over the last three years of transformation, our staff have gotten used to a lot more new ways of doing things, including being much more agile. That commitment and those skill sets will be very helpful when we restart operations and also going back to the growth trajectory in the longer run. We have also established strong digital capabilities, which we believe will be a very important aspect of the next phase of our transformation and also for the industry and the way we interact with our customers going into the future.
As you can see, and I've stated it earlier, all these attributes put us in a very strong position to do both the restart and also to positioning ourselves for longer term success. That's my last slide. Thank you very much.
Thank you, Mr. Goh. We now have approximately 35 minutes or so for a Q&A. Mr. Goh and Mr. Barnes will be joined on the line by our three executive vice presidents. They are EVP Operations, Mr. Mak Swee Wah, EVP Commercial, Mr. Lee Lik Hsin, and EVP Finance and Strategy, Mr. Tan Kai Peng. Please note that this session is being recorded and the clip will be uploaded. Therefore, we would appreciate it if you could please identify yourself and the organization that you represent when you ask questions. We also have a lot of media and analysts on this call. Therefore, in the interest of time, we would really appreciate it if you could please limit yourself to one question if possible. Over to you, Rishi.
Thank you. Again, ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Again, for questions, it is star one. The first question we have is from the line of Chen Chuanren from Air Transport World. Your line is now open.
Hello. Thank you. Good morning. I'm Chen Chuanren from Air Transport World. If I may, I have two short questions. First question is the merger between SilkAir and SIA is initially set for end 2021. Will we foresee a acceleration of this plan? The second question is, how do you balance the supply and demand between SIA and Scoot? Which segment do you expect to recover first? Thank you.
Okay. The merger of SQ and SIA.
SilkAir and SIA.
Oh, sorry. SilkAir and SIA. We have announced a previous timeline. At this point in time, we are still evaluating what the implication is for us from the COVID impact. I think we can say that we intend to look at maintaining the timeline, at least to maintain a timeline. As you can see, if there's opportunity or valid reason to speed it up or benefit to speed it up, we will certainly look at it. On the recovery of whether or not the recovery for Scoot or for SIA, the mainline, is going to be faster. The thing about it is, as I mentioned, our recovery depends on not merely on expectation of the traffic, but also on lifting of the border control, which is certainly not within our control.
That means that the important thing is for us to be very nimble in responding to how the market will develop. At this point in time, it's too early to call. What is important is that we do have both the LCC and the full service in our portfolio, which give us the advantage of being able to react quickly, effectively, as we see how the market unfolds and the border controls being relaxed.
Rishi, next question, please.
Thank you. The next question we have is from the line of Ajit from UOB. Your line is now open.
Hi, I've got two quick questions. One is, what do you expect in terms of capacity, if border capacity for FY 2021, if border control restrictions are lifted? That's my first question. Second follow-up question is, what would you prioritize more in terms of sale-leaseback transactions or direct sale of aircraft?
This is Lee Lik Hsin . I will take the question on capacity. As mentioned by Goh Choon Phong, it is clearly evolving, and things happening even in the moment can change the outlook of what the capacity will be for FY 2021. Safe to say is that we do know that this crisis will have a significant economic impact, and that it would be realistic to expect that we will not go back to exactly the capacity that we were at prior to the crisis, within a short time frame. Certainly for the next 6 to 12 months, we will not rebound to exactly the same level that we were at. That is our current planning horizon.
Ajit, this is Kai Ping.
Yes.
Thank you for the question. I will take the question on funding. We have disclosed that in addition to the rights issue, we are concurrently looking at both the secured debt market as well as sale-leaseback opportunities. All these are being looked at in parallel. I think one of the themes you have heard, and I think you'll continue to hear, is around how to maintain flexibility and how to be nimble in how we approach the COVID situation. You will be aware that while the debt markets are open, they are more limited for the aviation sector. With our rights issue and the strengthening of our balance sheet, that puts us in a much stronger position. We are exploring all the different pockets of liquidity, different sectors of liquidity, in parallel.
Thank you. Next question, please.
Thank you. The next question is from the line of Jamie Leah Freed from Reuters News. Your line is now open.
Hi. My question is just about fleet. Are you considering the retirement of some or all A380s? Do you still want the 777X, or will you consider potentially swapping that for another model?
You're talking about the fleet. What we've done, as you're aware, in especially recent years, is this very rapid replacement of our older aircraft with newer aircraft. We expect that to continue. Each aircraft in our fleet serves a purpose. A380, of course, up to this point, has been serving these strong dense routes. We'll continue, like I said, the pace of recovery, the shape of recovery of this particular crisis is still uncertain. We have flexibility around our fleet, so we'll continue to look at what we need to do in terms of mapping the fleet requirements and the market outlook.
Thank you. Next question, please.
The next question is from the line of Ezien Hoo from OCBC. Please proceed.
Hi. Thank you very much for the presentation. I just have a couple of quick questions. The first one is, we saw your impact of the fuel hedges on the income statement as well as the balance sheet. Can you share some color on the impact on cash flow? The second question is, in the very near term, say, the six to 12 months, do you think that air travel would actually be more expensive for the consumers in line of social distancing measures? Thanks.
Okay. Thank you. It is Stephen here. I will take the fuel hedging question. All of the fuel hedges have a maturity, which is sort of essentially laid out at the moment. The fuel hedges that matured in Q4, and on which we suffered losses, cash flow relating to those hedges has already been incurred. The SGD 710 million of mark-to-market losses, as you rightly picked up, is an unrealized loss. Those contracts will mature during the course of financial year 2021. The cash flow impact will happen as the year progresses. It is feasible to work with counterparties or others in the market to roll over some of those contracts, and we have done so. We need to be wary of the commitments that we make, the prices that we enter into, that we contract, and so on.
We are step by step approaching the market when it seems to be opportune to do so. Cash flow generally is going to be spread through the year, as those unrealized losses come to fruition.
Hi, this is Lik Hsin. I'll take the second question. As to whether airfares will go up or go down, the price of the air ticket is really a function of demand and supply. We will have to adapt to those curves accordingly as we get back out in the market when we restart our services. As to the question of social distancing, in particular on the aircraft, it is still not determined at this time, the efficacy of such measures. There are many discussions ongoing between various authorities, as well as amongst the airlines and airlines with authorities on this subject, but it is too early to make any pronouncement on this.
Thank you, Lik Hsin. Next question, please.
Next question is from the line of Toh Ting Wei from The Straits Times. Please go ahead.
Hi. Just wanted to ask, what will the future of air travel be like for the consumer? You touched on the prices, but then are we looking at longer waiting times to check in, increased measures such as maybe the cabin crew having to wear PPE and reduced services that are permanent instead of temporary?
This is Mak Swee Wah. Yeah. In fact, all those things you mentioned are precisely the kind of issues that we, together with other airlines, are working with authorities and also regulators on what we call the mode of operation. Obviously, the concern now is on safety and health, and there is a few themes out there. For example, wearing mask, social distancing on the ground, contactless service. All these issues are now being examined to see how practical they are, how they can be implemented, both on the ground as well as in the air. As things stand now, there are already some models out there which requires a passenger to wear a mask, and there are also some guidance on the kind of in-flight service.
This is one area where it will evolve, and, well, safe to say that it will not be the same as the pre-COVID situation. Thank you.
Thank you, Mr. Mak. Next question, please.
Thank you. The next one is from the line of Raymond Yap from CIMB. Please go ahead.
Hi, gentlemen. The CapEx for FY 2021 has been reduced from SGD 6 billion in the last guidance to SGD 5.3 billion. Can I ask, is there a potential to reduce it further, or is it not possible because aircraft deliveries cannot be pushed back in the current year? The second question is on the staff cost, which actually fell SGD 500 million between the third quarter and the fourth quarter. Did the Jobs Support Scheme come into play here and contribute some of this decline, or is the JSS only contributing from April onwards? Thanks.
Okay. If I may, Stephen here. On the capital expenditure, there has been some shifting of expenditure, primarily relating to significant maintenance expenditure. The material that we would need, the expenditure that we would normally capitalize. We're not flying the fleet at the same pace as previously, we no longer have to undertake some of that maintenance expenditure, so it gets deferred. As far as the outcome of the negotiations with Airbus and Boeing is concerned, it's still being negotiated. While we hope that there is scope to improve cash flows in the current year, until we have an agreement, we choose not to actually count it as done. On staff costs, the major impact, although the budget support relates to the period October to March, it was only announced and the cash received rather recently.
As a consequence, we actually booked all of the benefit, I should say, in Q4, rather than in Q3 and Q4. Secondly, the adjustment to profit-sharing bonus is a Q4 effect, because we had been building up a provision for profit-sharing bonus through December, and that required an adjustment out during Q4.
Okay. Thank you, Mr. Barnes. Next question, please.
Next question is from Brendan Sobie from Sobie Aviation. Your line is now open.
Yes. Hi, good morning. I had a question about retrofits. With the A380, it could go either way. You can use this downtime to accelerate and complete the program, or you can just delay it because maybe you think the aircraft won't be coming back into service soon. Can you tell us if it's accelerated or slowed down or just no change? The same thing with the 737-800s that I think that lie-flat retrofit and was going to start pretty soon. Is that accelerated or slowed down or the same? Related, I was wondering about cargo conversions. You might have noticed some airlines, like Air Canada, have converted some of their 777s temporarily by taking out the seats.
I was thinking maybe especially with your A380s, which are still in service, but maybe won't go back into passenger service, that there could be an opportunity to maybe quickly turn those into cargo. Just any thoughts on whether you're looking at that? Thank you.
Hi, Brendan. Lee Lik Sin here. I would take the question on the cargo conversion. There is no quick conversion into a full freighter that's available, but we have done a few things. Firstly, we are able to sometimes, depending on the type of cargo, carry cargo in the passenger area of the aircraft. We already have certification approval from our regulators to do this. The second type of measure that you might be referring to is where airlines actually strip out the seats altogether and carry more cargo on board. This is still not a full conversion to a freighter, not equivalent to that. That is something we are exploring at this juncture, but we have not yet made a decision on actually implementing it.
Goh Choon Phong here. On the questions about the various retrofit programs and all that, you can imagine that all these are actually under intense review by us. As you can imagine, also all these involve also discussion with the various suppliers and so forth. Like our practice, until we have something that we can announce, until there's something concrete that we can announce, we will not be talking about it in public.
Thank you, Mr. Goh. Next question, please.
Next question is from Louis Chua from Credit Suisse. Your line is now open.
Hello, good morning. I have two quick questions, if I may. First, in terms of the monthly cash burn based on the 96% cut in passenger capacity, are you able to give us some guidance to that? Secondly, previously you mentioned that you are working with all your suppliers and partners to reduce costs. Can you help us to quantify the level of cost reductions you have managed to get from your suppliers? For example, through some of the other maintenance etc.
Okay. If I may, Stephen again. On cash burn, essentially what we are left with only 4% of capacity in the air, is our fixed costs. Our fixed costs, by way of guidance, would be in the region of 30%-35% of our total costs in a normal operating environment. From that, I think you can derive the sort of cash burn that we are looking at. I think you'll see that that's somewhat consistent with the operating cash flow needs that would be covered by the use of proceeds of the rights issue. In terms of cost reductions, there have been useful, but not fundamental reductions in costs secured from our suppliers. In fairness, the entire aviation sector is under pressure. Where we have been frankly more successful is in adjusting the timing of payments.
The scheduling of cash outflows has been shifted, and that has helped, particularly in this period before proceeds of the rights issue have been received.
Thank you. Next question, please.
Next question is from Alfred Chua from FlightGlobal. Your line is now open.
Hi, good morning. This is Alfred from FlightGlobal. I have a follow-up question in terms of SIA's fleet plans and fleet strategy. Will SIA be retiring any aircraft types earlier than expected? Can we get confirmation that the Boeing 777-200 fleet itself has SIA already brought forward the retirement of that particular aircraft type? Also, could you give us a flavor of the engagement with the manufacturers to adjust the delivery streams? What is the timeline that you're looking at in terms of potential deferment? Thank you.
If I could take the first part of that question. Yes, it is the case that if we are not expecting in the next one to one and a half years to recover the full service as we had pre-COVID, we will not need the same size fleet that we had. The aircraft that would therefore be less needed will be the older aircraft, and those will be the 777 Classics, the 777-200s in the fleet. We are expecting that they will leave the fleet a little earlier, certainly by the end of this financial year. The A330s are on lease, but they too are, even by schedule, due to leave the fleet within the next 12 to 14 months, and we will not be extending those aircraft leases. Those two fleets will probably be no longer flying in a year's time.
If I could leave to Kai Peng. You have a question?
Yeah. Alfred, your question of color on the discussion with Airbus and Boeing. These discussions are active and in progress, and it will not be fair therefore for me to comment on this at this time. Yeah. We will disclose when there is information to disclose.
Thank you. Next question, please.
Next question is from the line of Ben Hartwright from Goldman Sachs. Please proceed with your question.
Hi, good morning. Thanks very much for doing the call. This is Ben Hartwright from Goldman Sachs. If I could just follow up on a couple of the earlier questions, actually. One is on staff costs. Stephen, could you elaborate on the amount that we should think about in terms of the bonus adjustment back out in Q4? Also, what budget support do you recognize in Q4? What was the amount there, and what should we expect going forward? Just on the hedging losses, I was wondering if you could just give us a little bit more color on what your assumption was on FY 2021 consumption when you were calculating the SGD 700 million hedging losses in the P&L. Thank you.
Ben, I'm not going to be very helpful to you. Look, I can't describe to you the staff component of the reduction in our staff costs. I think that would not be something that I can disclose. In terms of continuing budget support, there is some continuing budget support through July, which has been announced. There'll be some benefit that we will receive going forward. In terms of the recovery of the network, we do assume that there will be some recovery of the network during the financial year. We have a very tentative profile on which we have reviewed the hedges that are effective and ineffective. We will continue to review that as we go through the year, and it is something that we will need to do to continue to establish whether or not there is cause for further ineffectiveness or not.
That is something that we will have to see as more information becomes available, and greater confidence in the recovery, if any, emerges.
Thank you. Next question, please.
Next question is from the line of Mayuko Tani from Nikkei Singapore. Your line is now open.
Hi. Thank you. This is Mayuko from Nikkei. I just would like to know about the SGD 8.8 billion rights issue. How long will this last? I have heard you, Mr. Goh, saying that this was determined by looking at the necessity requirement over the financial year. Is this for this financial year? What kind of scenario is this based on? Also, I'd like to hear what you think about the continuity of NokScoot for the time being. Thank you.
Okay. On the issue of how long the SGD 8.8 billion will last, I believe you have read previous report whereby we have mentioned that we expect it to last much of the financial year. I think to also bear in mind that, at the same time, we are continuing with our current cost-cutting measures. We will have to look at what perhaps other things we can do. Certainly, the cost measures that we have put in place, that will continue. You are also aware that we are going out to look at raising liquidity through both secure financing deals and lease-back and other forms. As I mentioned earlier in my presentation, that if given the strength of our balance sheet with the rights issue, we believe we'll be in a stronger position to get those deals done.
At the same time, you're also aware that we are talking to the manufacturers about this major part of our CapEx expenditure, about moving some of the CapEx expenditure out. All these will help to address some of the liquidity issue. On top of that, of course, you are aware that we do have ability to draw on the SGD 6.2 billion of additional MCB. On the matter of NokScoot, like any other carriers in the world, it is also faced with the COVID challenge. We're not able to comment much at this point in time, but we just have to say that this is an area we will continue to watch carefully. Again, for NokScoot, it's down, NokScoot has also its owned majority shareholders and all that. It's also for NokScoot, as an airline, to assess its situation and how to react to it.
Thank you. Next question. We'll probably have time for one or two more last questions. Next question please, Rushi.
Next question is from Shaurya Visen from Goldman Sachs . Your line is now open.
Hi. Morning, all. Thank you for taking my question. I have a quick one. Can you just give us a sense of your cargo yields? So I'm thinking more like in March and April, what were the cargo yields looking like, say perhaps year on year? Thank you.
Well, suffice to say that we have seen a healthy improvement in our cargo yields in recent months. We can't give you the cargo yield in April. That's not a published figure at this juncture. The fact of us operating, which we have publicized, that we've operated some flights that only carry cargo, goes to show that the yields are healthy, that the carriage of the cargo alone is enough for us to justify operating those flights.
Thank you.
Thank you.
Thank you. The last question, please.
The last question is from James Teo from Bloomberg. Your line is now open.
Hi. Morning, everyone. Thanks for giving me the opportunity to ask a question. One first, I think two quick ones. One is on other operating expenses. I noticed that it actually went up for the quarter despite the capacity reduction that we've seen. Maybe if you could shed some color on what are behind those and whether that is likely to persist. Is it related to more disinfection measures or health-related measures like that? Second question is on loads, and how are you seeing in terms of the load now with the severe cut of 96% capacity? Are loads holding at the 50% range, or can you give some directional guidance at least, if not exact numbers at this point? That'd be all. Thank you. If I could take the other operating expenses question.
I think you're referring to the SGX announcement, which sees a SGD 20 million or SGD 22 million increase. If that's not correct, please tell me. I think that the primary reason for this increase is actually related to KrisShop. The increase in revenue from merchandise sales obviously has a cost in sourcing the goods. That's pretty much the explanation for the increase in other operating expenses.
On the question on loads, as Choon Phong mentioned, we maintain the minimum connectivity network for good reason, to be able to continue to bring Singaporeans home. Clearly, with all of the travel restrictions in place, demand is almost nonexistent. You would expect that our loads are far, far, far below what normal levels would look like. We would continue to publish those numbers on a monthly basis, and you can look at those numbers for updates, but very, very low at this time.
Thank you, Lee Lik Hsin. Thank you, everyone, for your questions and for participating in this media and analyst briefing. Stay safe, be well. Thank you again.